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Sometimes companies pay dividends in the form of additional shares of stock instead of cash. The impact of making distributions in the form of stock dividends is reflected in the statement of stockholders' equity. Consider the case of the Saltwater Logistics Inc.: The pre-stock dividend common stockholders' equity statement for Saltwater Logistics Inc. is as follows: Saltwater Logistics Inc. Pre-Stock Dividend Common Stockholders' Equity Common stock ($8 par, 1,600,000 shares) $12,800,000 Contributed capital in excess of par $1,200,000 $4,000,000 $18,000,000 Retained earnings Total common stockholders' equity Suppose you own 100 shares of Saltwater Logistics's stock. Saltwater Logistics's stock is trading at a market price of $16 per share, and the company

Sometimes companies pay dividends in the form of additional shares of stock instead of cash. The impact of making distributions in the form of stock dividends is reflected in the statement of stockholders' equity. Consider the case of the Saltwater Logistics Inc.: The pre-stock dividend common stockholders' equity statement for Saltwater Logistics Inc. is as follows: Saltwater Logistics Inc. Pre-Stock Dividend Common Stockholders' Equity Common stock ($8 par, 1,600,000 shares) $12,800,000 Contributed capital in excess of par $1,200,000 $4,000,000 $18,000,000 Retained earnings Total common stockholders' equity Suppose you own 100 shares of Saltwater Logistics's stock. Saltwater Logistics's stock is trading at a market price of $16 per share, and the company

Financial Accounting: The Impact on Decision Makers
Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter11: Stockholders' Equity
Section: Chapter Questions
Problem 11.12E
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Working Note; - Dividend 12800000*8% Current EPS 2.40 No. of Shares issued= 1024000/16 Share Capital Part Excess Capital Contributed No. of Shares = = New EPS = $1024000 (amount used to calculate common stock, ccep, and retained earnings) = 1600000 64000*8 New Shares Issued= 64000 = as 108*15.34 = $1870 Total Earnings = 1600000*2.40= $3,840,000 Now, total no of shares 1664000 = = 512000 1024000-512000 3840000/1664000 = $2.30 64000 and the Market Value of the Stock PE Ratio = MPS/EPS = 16/2.4 = 6.67 now new EPS is 2.30, so the MPS 3. Value of wealth will be around $1800 = = $512000 6.67*2.30 = $15.34
Transcribed Image Text:Working Note; - Dividend 12800000*8% Current EPS 2.40 No. of Shares issued= 1024000/16 Share Capital Part Excess Capital Contributed No. of Shares = = New EPS = $1024000 (amount used to calculate common stock, ccep, and retained earnings) = 1600000 64000*8 New Shares Issued= 64000 = as 108*15.34 = $1870 Total Earnings = 1600000*2.40= $3,840,000 Now, total no of shares 1664000 = = 512000 1024000-512000 3840000/1664000 = $2.30 64000 and the Market Value of the Stock PE Ratio = MPS/EPS = 16/2.4 = 6.67 now new EPS is 2.30, so the MPS 3. Value of wealth will be around $1800 = = $512000 6.67*2.30 = $15.34
Sometimes companies pay dividends in the form of additional shares of stock instead of cash. The impact of making distributions in the form of stock dividends is reflected in the statement of stockholders' equity. Consider the case of the Saltwater Logistics Inc.: The pre-stock dividend common stockholders' equity statement for Saltwater Logistics Inc. is as follows: Saltwater Logistics Inc. Pre-Stock Dividend Common Stockholders' Equity Common stock ($8 par, 1,600,000 shares) $12,800,000 Contributed capital in excess of par $1,200,000 $4,000,000 $18,000,000 Retained earnings Total common stockholders' equity Suppose you own 100 shares of Saltwater Logistics's stock. Saltwater Logistics's stock is trading at a market price of $16 per share, and the company recently declared a 8% stock dividend. You are worried about the dilution of your earnings, so you'd like to make some calculations to evaluate the impact of the stock dividend on your investment. Based on your calculations, complete the following table: Saltwater Logistics Inc. Post-Stock Dividend Common Stockholders' Equity Common stock Contributed capital in excess of par Retained earnings Total common stockholders' equity If Saltwater Logistics's pre-dividend earnings per share (EPS) was $2.40, then the post-distribution EPS will be $2.22 market price of Saltwater Logistics's shares should be $20.56 per share. $2,400 $1,600 After the distribution of the stock dividend, you would own 108 shares of Saltwater Logistics's stock, and the value of your wealth will be:(Note: Do not round intermediate calculation) $1,780 O $2,220 $13,824,000 $2,224,000 $1,952,000 $18,000,000 $5,200,000 $4,000,000 and the post-distribution Suppose the state in which Saltwater Logistics is registered levies a capital impairment law. What will be the maximum amount of dividends that Saltwater Logistics can distribute if the capital impairment provisions define capital as the par value of the firm's common stock and the capital in excess of par account? (Hint: Use the pre-distribution data to answer this question.)
Transcribed Image Text:Sometimes companies pay dividends in the form of additional shares of stock instead of cash. The impact of making distributions in the form of stock dividends is reflected in the statement of stockholders' equity. Consider the case of the Saltwater Logistics Inc.: The pre-stock dividend common stockholders' equity statement for Saltwater Logistics Inc. is as follows: Saltwater Logistics Inc. Pre-Stock Dividend Common Stockholders' Equity Common stock ($8 par, 1,600,000 shares) $12,800,000 Contributed capital in excess of par $1,200,000 $4,000,000 $18,000,000 Retained earnings Total common stockholders' equity Suppose you own 100 shares of Saltwater Logistics's stock. Saltwater Logistics's stock is trading at a market price of $16 per share, and the company recently declared a 8% stock dividend. You are worried about the dilution of your earnings, so you'd like to make some calculations to evaluate the impact of the stock dividend on your investment. Based on your calculations, complete the following table: Saltwater Logistics Inc. Post-Stock Dividend Common Stockholders' Equity Common stock Contributed capital in excess of par Retained earnings Total common stockholders' equity If Saltwater Logistics's pre-dividend earnings per share (EPS) was $2.40, then the post-distribution EPS will be $2.22 market price of Saltwater Logistics's shares should be $20.56 per share. $2,400 $1,600 After the distribution of the stock dividend, you would own 108 shares of Saltwater Logistics's stock, and the value of your wealth will be:(Note: Do not round intermediate calculation) $1,780 O $2,220 $13,824,000 $2,224,000 $1,952,000 $18,000,000 $5,200,000 $4,000,000 and the post-distribution Suppose the state in which Saltwater Logistics is registered levies a capital impairment law. What will be the maximum amount of dividends that Saltwater Logistics can distribute if the capital impairment provisions define capital as the par value of the firm's common stock and the capital in excess of par account? (Hint: Use the pre-distribution data to answer this question.)
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